Elements for a Normative Theory of Privatization

Abstract

Heath’s paper on privatization defends a broadly welfarist-economic approach in thinking about the legitimacy of privatizations. This approach is ‘instrumentalist’ (in contrast to deontological approaches). In this response, I accept the value of an instrumentalist approach to privatization, but argue against Heath’s welfarist version of it, and argue in favor an alternative. First, the ends we seek when thinking about socially vital goods (our theory of public interests) should go beyond Pareto-efficiency. Second, as to the means we employ to realize these ends, we need a view of markets which takes into account not just their competitiveness, but also the distribution of power. This means we need to differentiate market types. Third, we need to differentiate ownership types beyond the standard shareholder-owned company. Alternative ownership structures may be able to realize public interests more easily and hence make privatization less problematic. On these three issues, the picture Heath sketches leaves out too many of the variables that, in the end, may be decisive in whether or not a privatization is acceptable.